SERC, NBC signal plans to regulate virtual assets, crypto

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Key takeaways

SERC and NBC issued a joint notice on regulating virtual assets.
Regulators highlighted risks like money laundering and consumer protection.
Licensed commercial banks need central bank approval for virtual asset services.

Cambodian financial regulators have expressed their intention to establish a regulatory framework governing activities related to virtual assets such as cryptocurrency. A September 23 joint notice from the Securities and Exchange Regulator of Cambodia (SERC) and the National Bank of Cambodia (NBC) noted that the expanding virtual asset market “could pose macroeconomic risks as well as risks related to consumer protection and money laundering”.

The “Regulation of Virtual Assets and Virtual Asset Service Providers” notice reiterated that the two institutions have observed the rapid development of the virtual asset market and their growing use for speculative investment, in addition to as a means of payment for goods and services. It defined virtual assets as a “digital representation of value that depends primarily on cryptography and a distributed ledger or similar technology, can be digitally traded or transferred, and can be used for payment or investment purposes”. The two institutions highlighted the risks associated with their use, as well as policy concerns such as tax evasion and cyber-crime.

Background on cryptocurrency regulation in Cambodia

A joint 2018 SERC, NBC and General Commissariat of National Police statement foreshadowed the warnings, noting that any person or legal entity that dealt in cryptocurrencies without obtaining a licence from the competent authorities would be subject to penalties in accordance with applicable laws. The latest statement highlighted the how the risks associated with virtual assets have been amplified by their increasing adoption globally, their extraterritorial nature and their growing links with the mainstream financial system. These developments have made it necessary to establish a comprehensive, consistent and coordinated regulatory response, it added.

It noted that regulating such activities could “provide opportunities to increase transparency in financial markets, broaden access to financial services, promote economic empowerment and contribute to public revenues”. The SERC and NBC proposed a harmonised regulatory framework based on three key principles: investor and consumer protection, market integrity and supporting innovation.

Licensing requirements and official warnings

They announced that licensed commercial banks that intend to provide services to customers related to the use of virtual assets must obtain prior approval from the NBC. Legal entities other than commercial banks that are licensed by the NBC must obtain a licence from the SERC in advance, it added. The two bodies intended to cooperate on coordination mechanisms for the future development of the virtual asset market as it evolves, with periodic reviews of their cooperation.

They also reminded the public that, under Cambodian law, virtual assets are not recognised as legal tender and are not guaranteed by the government or the central bank. “Virtual assets are very volatile and carry significant risks. The public are advised to carefully evaluate the risks associated with any dealings in virtual assets and make informed investment decisions,” they warned.

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